Your questions on China's economy answered - see the transcript

In case you weren't able to join World Bank economists and regular bloggers David Dollar and Louis Kuijs earlier today in a live online chat, a transcript from the in-depth discussion is available here. David and Louis spent an hour and a half answering more than 30 questions about the recently released China Quarterly Update economic report, as well as topics ranging from foreign trade, health care reform and the long-term impact of the financial crisis on China's economy.

Comments

Re the march china update, I did not see an estimate for export prices in 2009 in the table on trade forecast de-composition. Li and Fung trading co. recently said China manufactured export prices this year so far are falling 5% to 10% year on year. Don't you think this kind of price slashing will cause Chinese manufactured export volumes to rebound sharply as the year progresses? And as a consequnce, export volume contribution to growth might be higher than your forecast?
Great job overall on the quarterly,the blog and the Q&A session.
Also how much of your detailed China forecast is based on macroeconometric modeling and how much is judgemental?

It seems that the Chinese banking and financial sector has come through this crisis with quite remarkable resilence. And is possible one of the reasons for the sustained growth rate of 6.5% across the whole economy. The banking and finance system has been criticised in the past in China for being too unresponsive to market forces and adoption of more liberal regulatory framework, new technology, new products and improved work practices. But these characteristics seem to have helped avert the systemic crisis affecting the banking sector in most western economies during this global financial crisis. If that's the case then it raises the question of whether something might be learned by the developed economies from the Chinese banking system?

David,
I agree with you. China's banks have been largely unscathed, at least by the direct impact of the crisis. Moreover, China has not relied on foreign financial capital for growth. These are major plusses at the moment. China's banks have in fact deleveraged in recent years, as has China's economy in general. This puts the banks in a good position to lend. And, with the savings that finance investment generated in China itself, China is not at the mercy of international financial markets, unlike some other emerging markets.
The current financial crisis is a particular one, as it originated and hitted the most sophisticated markets and, typically, the more sophisticated participants. In several regards, several parts of these markets and many participants were much too sophisticated. Thus, more traditional financial systems and participants have come out well in comparison.
I guess one lesson of all this is indeed that all the leveraging and taking, slicing and repackaging of risk went much too far. Let's hope that the coming G20 can agree on some ways to prevent this from happening again.
The crucial question for policymakers in emerging markets such as China is: does this mean we should stop with financial market reform and deepening? I would say "absolutely not". China's financial markets are not developed enough and a halt in further market oriented financial sector reform will hinder further development. China can continue to build on its strengths, such as doing reforms in a controlled manner, to continue reforming and deepening the financial sector. There are important lessons from the global financial crisis, notably in the area of financial regulation. But I hope that policymakers in emerging markets do not turn their back on market oriented reform.

Thank you.
On our trade price projections, we don't usually put these in the tables. One reason for that is because they are very difficult to forecast and in the end what matters most is how the terms of trade develop. In our current projections, we have them flat in US$ terms for 2009, with import prices down by 6 %, but I don't necessarily feel very strongly about the rates. I feel more strongly about the projection that import prices will rise less (or fall more) by 6 pp than export prices. The number you mention is much lower. I don't know if I would go that far. In January average export prices were still up over 2 % from a year ago.
Overall, there will be significant downward pressure on international prices of manufacturing products, reflecting the emerging spare capacity globally. I don't know exactly how much China's companies will be leading this or just follow. But, at any rate, when global demand falls away, there is only so much that you can achieve by lowering your price. In general, I don't think we will see a shift rebound in China's exports before world demand rebounds.
On forecasting, the projections rely a lot on judgment. We use results from econometric research to inform our projections, we use models to make sure things add up and are weighed correctly. We also use macro econometric models to do simulations. But, at the end of the day, judgment matters a lot.